Technical Market Report

By: Mike Burk | Sat, Jun 10, 2006
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The good news is:
• Historically next week has been better than last week.

Short term

Price movement is often described as two steps forward one step back the corollary would be one step forward two steps back. We can draw a theorem from the previous statement: "The longest string of consecutive up or down days in recent history defines the trend."

The chart below illustrates our theorem. The chart shows the past 9 months with the Russell 2000 (R2K) in red and an indicator showing the percentage of the previous 5 trading days that were up in green. Grey dashed vertical lines are drawn on the 1st trading day of each month a red dashed vertical line has been drawn on the 1st trading day of the year.

In mid to late November the indicator touched the top of the chart for the 1st time after the October low. The indicator touched the top of the chart in early January and again in mid March confirming the positive trend. In mid May the indicator touched the bottom of the chart indicating a reversal of the trend there was a confirmation last Friday.

Intermediate term

Oscillators are derived by subtracting a longer term moving average of a data stream from a shorter term moving average of the same data stream. Oscillators themselves can be difficult to read because they jump around a lot and their tendency is to regress to 0. To make oscillators easier to read we derive other indicators from them.

The chart below shows the NASDAQ composite (OTC) in red and momentum indicators of oscillators calculated from NASDAQ advancing issues - declining issues (AD), new highs - new lows (HL) and upside volume - downside volume (UD).

The momentum indicators have all turned downward after rising sharply during the late May rally.

Seasonality

Next week is the week prior to the 3rd. Friday in June during the 2nd year of the Presidential cycle. Options and futures also expire on Friday.

The tables below show daily returns for the OTC from 1966 - 2002 and S&P 500 (SPX) from 1930 - 2002 during the 2nd year of the Presidential Cycle. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

By percentage of up years next week is a little better than last week, but all of the average returns have been down.

You can get more information about the Presidential Cycle at: http://alphaim.net/newsletter.html select Alpha Research Reports.

Report for the week before witching Friday during June
The number following the year is the position in the presidential cycle.
Daily returns from Monday to Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.51% 0.31% 0.20% -0.02% 0.24% 1.24%
 
1970-2 -1.41% 0.27% 1.66% 0.83% 1.46% 2.80%
1974-2 -1.47% -0.36% -0.73% -1.00% -0.93% -4.49%
1978-2 -0.10% -0.04% 0.22% -0.26% -0.40% -0.58%
1982-2 -0.81% -0.56% 0.15% -0.93% -0.79% -2.94%
1986-2 -0.26% -0.57% -0.26% 0.29% 0.12% -0.68%
Avg -0.81% -0.25% 0.21% -0.21% -0.11% -1.18%
 
1990-2 0.42% 0.81% 0.49% -0.38% 0.10% 1.45%
1994-2 -0.35% 0.58% -0.02% -0.12% -0.76% -0.66%
1998-2 -1.68% 2.17% 1.33% -0.21% 0.49% 2.10%
2002-2 3.23% -0.67% -2.99% -2.14% -1.62% -4.20%
Avg 0.40% 0.73% -0.30% -0.71% -0.45% -0.33%
 
OTC summary for Presidential Year 2 1966 - 2002
Avg -0.19% 0.20% 0.01% -0.39% -0.21% -0.60%
Win% 30% 50% 60% 20% 50% 40%
 
OTC summary for all years 1963 - 2005
Avg -0.11% 0.07% 0.06% -0.15% 0.02% -0.11%
Win% 44% 60% 64% 43% 60% 53%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1930-2 -5.69% 0.10% -3.50% 4.68% -2.60% -7.00%
1934-2 -1.27% 1.09% 0.00% -1.47% 1.79% 0.14%
1938-2 -2.56% 1.16% 0.42% 0.93% -0.92% -0.98%
1942-2 0.24% 0.12% 1.67% -0.47% -1.06% 0.50%
1946-2 0.11% -1.38% -0.59% -2.22% 1.11% -2.98%
Avg -1.83% 0.22% -0.50% 0.29% -0.34% -2.07%
 
1950-2 0.73% -0.77% -1.40% -0.26% 0.21% -1.50%
1954-2 0.14% 0.73% 0.73% -0.28% 0.28% 1.60%
1958-2 0.36% -0.53% 0.89% -1.61% 0.54% -0.36%
1962-2 -1.08% -2.56% -1.49% -2.11% 2.87% -4.37%
1966-2 0.45% 0.28% -0.39% -0.30% 0.05% 0.08%
Avg 0.12% -0.57% -0.33% -0.91% 0.79% -0.91%
 
1970-2 0.23% 2.38% -0.20% 0.67% 0.71% 3.79%
1974-2 -1.38% -0.66% -0.68% -0.71% -0.85% -4.28%
1978-2 -0.38% 0.02% -0.09% -1.15% -0.94% -2.53%
1982-2 -1.15% -0.25% -0.75% -1.17% -0.30% -3.61%
1986-2 0.16% -0.72% 0.26% -0.38% 1.44% 0.76%
Avg -0.50% 0.16% -0.29% -0.55% 0.01% -1.17%
 
1990-2 0.81% 1.28% -0.37% -0.55% 0.00% 1.18%
1994-2 0.09% 0.71% -0.38% 0.29% -0.75% -0.04%
1998-2 -1.98% 0.98% 1.79% -0.06% -0.52% 0.21%
2002-2 2.87% 0.09% -1.65% -1.34% -1.70% -1.74%
Avg 0.45% 0.77% -0.15% -0.42% -0.74% -0.10%
 
SPX summary for Presidential Year 2 1930 - 2002
Avg -0.49% 0.11% -0.32% -0.39% -0.03% -1.11%
Win% 58% 63% 33% 21% 53% 42%
 
SPX summary for all years 1928 - 2005
Avg -0.16% 0.14% 0.05% -0.24% -0.06% -0.27%
Win% 53% 62% 51% 43% 57% 51%

Conclusion

The market is oversold and likely to bounce, but, sell the rallies appears to be the most widespread strategy.

I expect the major indices to be lower on Friday June 16 than they were on Friday June 9.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the suject line.

Gordon Harms produces a power point for our local timing group, you can get a copy of June PPT at: http:/www.stockmarket-ta.com.

 


 

Author: Mike Burk

Mike Burk

Mike Burk independently publishes a weekly newsletter on the stock market from a technical perspective.

Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy. Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) and the Wall Street Journal (wsj.com). Historical data is from Barron's and ISI price books. The views expressed are provided for information purposes only and should not be construed in any way as investment advice. Furthermore, the opinions expressed may change without notice.

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